Why the Falling U.S. Dollar Is Just a Hint of What's to Come

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It's been a wild year for the greenback. While the falling U.S. dollar of last week can be blamed on the U.S. Federal Reserve's surprise decision not to taper its bond buying, for most of the past two years, the dollar has been rising.

In fact, before the FOMC meeting last week, the dollar was up 12% since mid-2011.

And yet while the factors contributing to a rising U.S. dollar are likely to continue for a while, investors also need to be aware of several long-term threats to the dollar that eventually will fatally weaken the currency.

It's important for investors to understand exactly why the dollar is falling at times and rising at others, because the strength of the currency affects virtually every investment in one way or another.

Here's a piece-by-piece look at what's been going on this year with the dollar, and what investors can do to profit from it.

That would have been helped strengthen the dollar by reducing some of the liquidity that the Fed has been pumping into the U.S. economy. When the Fed instead stood pat, the currency markets reacted negatively. The dollar index fell 1%, to 80.060, a seven-month low, the day of the Fed announcement.

That excess Fed liquidity – the central bank has added $3 trillion to its balance sheet since the 2008 financial crisis – is actually one of the long-term threats to the U.S. dollar, as we'll see shortly.

The falling U.S. dollar reaction to last week's Fed decision, however, will be short-lived.

Before long, we'll return to a rising U.S. dollar, at least for a while.

Here's why it's inevitable that the dollar will soon resume its upward trajectory…

"In fact, bad policies have already dinged the dollar's value against other major currencies by 50% over the past 28 years." ~ David Zeiler

Even with the foregoing as true, it is irrelevant. Under fiduciary money systems of centralized banknotes and token coins, the price of one country's money in terms of another hardly has relevancy as each country's respective rates of formation of credit over money differ. As well, each country's respective output of goods sold primarily for cash, goods sold primarily for revolving credit, and goods sold primarily for non-revolving credit differ.

What counts is how many units of money of one country does it take to buy wanted goods priced in money of another country. What should count to anyone is how many hours does it take to earn enough units of money to buy that wanted imported product as if that one were working in that foreign country.

The U.S. dollar and other foreign currencies have been manipulated by traders to insure the direction of their positions. With that being said, big investment banks have created a massive amount of inflation to the cost of doing business, and the cost of living. The U.S. consumer is at a disporportionately disadvantage by the greed of Wall street. With the FED investing $85 billion dollars a month into the stock market, only makes it easier for spectulators to short, or go long on stocks with greater volitlity. They only need a sliver of profit every fifteen minutes, or so, every day, everyweek until a bubble occurs at the expense of the consumers. If any stimulous package was to be created, it should have in the price of oil. Because, the price of oil has driven inflation into a twilight zone economy. Everday spectulators are stacking the deck, by shorting one currency against another, and hedging gold into the mix, so when they take profits on oil, or anyother commodity, they're making it on all other positions as, well. ETF trading is so fast, no one can follow it in time to jump on the bandwagon. The problem with even our government is, we can not keep up with inflation, and Washington keeps giving away more, and more money. With $55 dollar a barrel oil the stock market could go to $20,000 thousand, and create jobs, by rebounding the realestate market for starters. Even if inflation was to continue on the same path, consumers would be able pay for things themselves, not by government assistance.

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